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Gold prices remain near session lows as U.S. CPI rises 3.7% in the last 12 months

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(Kitco News) - Gold prices are trading near session lows but are not seeing significant selling pressure even as the Federal Reserve continues to fight an uphill battle against inflation after consumer prices rose more than expected last month.

Wednesday, the U.S. Labor Department said its much-anticipated Consumer Price Index rose 0.6% last month, following a 0.2% rise in June. The data was in line with expectations.

However, the report said that inflation in the last 12 months rose 3.7%, up from July's increase of 3.2%. According to consensus forecasts, economists expected inflation to rise 3.6% for the year.

At the same time, the report said that higher consumer prices continue to be embedded in the broader economy as core CPI, which strips out volatile food and energy prices, rose 0.3% last month. Economists were expecting to see a 0.2% increase.

The gold market is struggling in the face of the latest inflation numbers as the market trades near session lows; however, there has not been any significant selloff in initial reaction to the data. December gold futures last traded at $1,932.80 an ounce, down 0.12% on the day.

For the year, core CPI rose 4.3%, the report said.

The gold market is struggling to find its footing but is not seeing significant selling pressure as U.S. CPI rose 3.7% in the last 12 months. December gold last traded at $1,931.10 an ounce, down 0.20% on the day.

Market analysts note that the latest inflation data is prompting markets to price in further rate hikes into year-end.

"This latest US CPI data is unlikely to move the needle on the Fed's highly anticipated move to hold rates steady at their meeting next week – which has already been priced-in by financial markets," said Nigel Green of deVere Group in a note to clients. "But the uptick in inflation gives the U.S. central bank extra reason to be hawkish moving forward. As such, we also expect the Fed will start to prepare the market for a rate increase at its November meeting."

However, Andrew Hunter, deputy chief U.S. economist at Capital Economics said that there is little in the latest inflation data that will force the Federal Reserve to maitnain its aggressive monetary policies.

"Although core prices also rose by a slightly stronger 0.3% m/m, there is little in the report to convince Fed officials that they need to raise interest rates further," he said in a note. "... We still expect weaker economic growth and a continued normalisation in the labour market to help drive a sharper fall in core inflation over the next 12 months than most others expect.

While inflation was hotter than expected, analysts were not completely surprised. Many noted that rising gasoline prices last month were expected to take a toll on consumer prices.

The report said that the index for gasoline had the biggest impact on headline inflation, rising 10.6%. The energy index rose 5.6% last month.

Also contributing to elevated consumer prices is a rise in shelter costs. The report said the shelter index rose for the 40th consecutive month, increasing 0.3% in August.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.